Art gallery, Sotheby's chairman settle fake Rothko case

Knoedler & Co, which before closing in 2011 was New York City's oldest art gallery, has agreed to settle a lawsuit over an $8.3 million sale of a fake Rothko painting, just as its ex-president was preparing to testify at trial.

The deal, confirmed on Wednesday by Knoedler's lawyer, resolved the remaining claims in a closely watched trial in Manhattan federal court in a lawsuit brought by Sotheby's Chairman Domenico De Sole and his wife, Eleanore.

The settlement with the De Soles, who were seeking $25 million in damages, came after the collectors reached a separate agreement on Sunday with Ann Freedman, Knoedler's former president.

Freedman was expected to testify on Tuesday as the case moved forward against Knoedler, but the trial was abruptly halted due to what U.S. District Judge Paul Gardephe called "unexpected developments."

Charles Schmerler, a lawyer for Knoedler and a related company, 8-31 Holdings Inc, said he was pleased a settlement was reached in light of Freedman's agreement.

Terms of both settlements were not disclosed. A lawyer for the De Soles' did not respond to a request for comment.

The De Soles sued Knoedler and Freedman in 2013 after prosecutors brought charges against an art dealer, Glafira Rosales, for participating in a scheme to sell fakes to galleries.

Those galleries included Knoedler, which received 40 paintings purportedly painted by modern masters including Mark Rothko and Jackson Pollock from Rosales, who pleaded guilty to wire fraud and money laundering charges in 2014.

Prosecutors said the paintings, including the Rothko that the De Soles bought in 2004 for $8.3 million, were actually created by a Chinese artist, Pei-Shen Quian, who was indicted in 2014 and is believed to be living in China.

At trial, lawyers for the De Soles said Freedman and Knoedler knew or should have known the paintings brought to it by Rosales were fake, and ignored a series of red flags.

The Knoedler gallery bought their fake Rothko for the "bargain-basement" price of just $950,000 before selling it for $8.3 million, Emily Reisbaum, a lawyer for the De Soles, said in her opening statement.

"It's simple," Reisbaum said. "You don't get to sell a fake painting and keep the money. To state the obvious, this is wrong."

But the defendants contended they were misled, along with many art experts.